(fra Kommisjonsforslaget)

1. CONTEXT OF THE PROPOSAL

•Reasons for and objectives of the proposal

The EU needs to do more to unlock the financing necessary to finance the digital, green and social transition as well as to boost growth. Efficiently functioning and deep capital markets are a necessary condition for achieving that goal. However, EU capital markets remain fragmented despite substantial efforts to integrate them over the years; this fragmentation is a substantial impediment to their development. This has been confirmed by a number of reports during 2024 including the Draghi report 1 , and the Letta report 2 . These reports also underline that the competitiveness and attractiveness of EU capital markets, and their ability to deliver the financing that the EU needs, can only be achieved if those markets embrace innovation.

The Savings and Investments Union needs to be built on efficient and safe post-trade services. These services play a key role, amongst other things, in the issuance of securities, finalisation of trades (settlement), keeping track of the ownership of securities as well as managing and reducing risks (clearing). Post-trade services are essential for the functioning of EU capital markets. For these reasons, all aforementioned reports have emphasised that more needs to be done to improve the efficiency of post-trade services.

Each day, more than EUR 4 trillion of securities 3  are settled in EU central securities depositories (CSDs). The longer settlement takes (i) the longer the risks 4  faced by buyers and sellers last; (ii) the longer investors have to wait to receive the money or the securities they are owed – if the settlement doesn’t fail; and (iii) the more that opportunities to enter in other transactions are reduced. Fast, efficient and reliable settlement is therefore an essential pre-condition for developing the Savings and Investments Union.

It has now been ten years since the Central Securities Depositories Regulation (CSDR) 5  entered into force and harmonised the securities settlement cycle in the EU at a maximum of two business days after the trade date (so-called ‘T+2’) for certain secondary markets transactions. 6 Since then, financial markets and technology have continued to evolve. Following the EU move at the end of 2014, many jurisdictions followed and moved to shorter settlement; for example, the US moved to T+2 in 2017. But innovation and the need to improve the efficiency of settlement, to increase competitiveness as well as to reduce risks to financial stability, have meant that efforts have not stopped there. The rest of the world has moved on since then: for instance China, India, the United States and Canada, have all shortened settlement to a maximum of one business day after the trade date (so-called ‘T+1’). Significantly, the global shift to T+1 is creating misalignments between EU and global financial markets and creates potential competitiveness gaps for EU capital markets. These misalignments will only increase the more countries will move to T+1. 

The most recent review of the CSDR recognised these trends and mandated the European Securities and Markets Authority (ESMA), in close cooperation with the members of the European System of Central Banks (ESCB), to assess the appropriateness of shortening the settlement cycle in the EU and present a roadmap for how such a move could be carried out. ESMA published its report (ESMA Report) on 18 November 2024 7 , recommending that the EU move to T+1 no later than 11 October 2027. 8

Shortening the settlement cycle in the EU would significantly change the way in which markets function today, with different impacts depending on the type of stakeholder, the category of transaction and the type of security. Quantifying some of the costs and benefits related to the shortening of the settlement cycle in the EU is challenging because of the lack of data, but the elements assessed by ESMA suggest that the benefits of a move in terms of risk reduction, margin savings 9 and the reduction of costs incurred because of inefficiencies stemming from the misalignment with other major jurisdictions globally, represent important benefits for the Savings and Investments Union. Moreover, investment in modernising, harmonising and improving the efficiency and resilience of post-trade processes that would be prompted by a move to T+1 would facilitate achieving the objective of further promoting settlement efficiency in the EU, promoting market integration and ultimately the Savings and Investments Union, and avoiding a competitive disadvantage for EU capital markets, which could see traders favour other, more efficient markets. Finally, maintaining the current settlement cycle in the EU would contribute to further fragmenting the Savings and Investments Union as different EU stakeholders would continue to implement divergent solutions to cope with shorter settlement in most of the world’s capital markets.

Most of the identified costs associated with a move to T+1 would manifest in the short term, and are related to the investments needed to modernise, standardise and digitalise various steps in the settlement process. On the other hand, the elements assessed by ESMA suggest that the impact of T+1 in terms of risk reduction, margin savings and the reduction of costs linked to the misalignment with other major jurisdictions globally, represent important benefits for the competitiveness of EU capital markets and for moving towards the Savings and Investments Union and would ultimately improve the efficiency of EU capital markets and hence maintain their competitiveness at global level. 10

Settling securities transactions on T+1 is already technically and legally possible in the EU. Hence a move to T+1 could be left entirely in the hands of the EU securities industry to coordinate and carry out. However, the higher level of complexity of EU financial markets - due to the number of different actors, systems and currencies involved - compared to other jurisdictions that already moved to T+1, would make coordinating the process extremely challenging for that industry and would not provide legal or even planning certainty.

These aspects have also been highlighted in the Joint Statement by ESMA, the Commission and the ECB on shortening the standard securities settlement cycle in the EU, published on 15 October 2024 (‘Joint Statement’) 11 . The Joint Statement pointed out the need for the EU to urgently act through a coordinated approach if it wants to avoid prolonging and amplifying the negative impacts of the misalignment in settlement cycles with major jurisdictions internationally and ensure an efficient and competitive Savings and Investment Union.

Therefore, this proposal aims to ensure that all stakeholders have sufficient time to prepare and move to T+1 in a coordinated and timely manner.

It is hence proposed that the EU move to a shorter settlement cycle requiring the settlement of transactions that are currently subject to a settlement cycle in T+2 to take place at the latest on the first business day after the trading takes place. This would not prevent CSDs that are already technologically capable to do so, to voluntarily settle transactions on the same date as the trade date.

•Consistency with existing policy provisions in the policy area

The proposal is to amend CSDR by introducing a T+1 settlement cycle in the European Union, to improve the efficiency of settlement with the aim of increasing competitiveness and reducing risks to financial stability. The proposed legislative changes would contribute to the development of a more efficient post-trading landscape in the EU, in line with the objectives set out under CSDR Refit 12 . Moreover, this proposal is in line with the Commission’s objective of building a Savings and Investments Union, to facilitate capital flow across the EU to the benefit of consumers, investors and companies. The settlement of securities is at the core of capital markets. Fast, efficient and reliable settlement is therefore an essential pre-condition for developing the Savings and Investments Union. A shorter settlement cycle would enhance the attractiveness of EU markets and unlock important benefits, notably by achieving risk reduction, margin savings and the reduction of costs linked to misalignment with other major jurisdictions globally.

•Consistency with other Union policies

This initiative aims to complement the broader Commission agenda to make EU capital markets more competitive and resilient. A competitive and efficient post-trade environment, of which the settlement cycle is a pivotal feature, is an essential element to achieve the Savings and Investments Union objectives. A fully functioning and integrated market for capital will allow the EU’s economy to grow in a sustainable way and be more competitive, in line with the strategic priorities of the Commission, focused on creating the right conditions for job creation, growth and investment.